GLOSSARY // Risk & Psychology
Margin Call
A margin call is a broker's demand for more cash or securities after account equity falls below the maintenance margin requirement. Meeting it means depositing funds or closing positions; failing to meet it means the broker liquidates positions itself, at whatever prices the market offers.
Brokers are not obligated to wait or to pick the position the trader would have chosen — most margin agreements allow immediate liquidation without notice. Calls tend to arrive during sharp selloffs, which is precisely when selling to raise equity locks in the worst prices. The trigger point is computable in advance: equity falls below the requirement when position value drops under loan / (1 - maintenance rate).
A trader buys $20,000 of stock with $10,000 cash and a $10,000 loan at a broker with 30% maintenance. The call triggers when the position value falls below $10,000 / 0.70 = $14,285.71 — a 28.6% decline. At that point equity is $4,285.71, exactly 30% of the position. The stock only fell 28.6%, but the equity is down 57%.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.